Are Banks Necessary? And other Questions
This blog was originally published on the Medium Website.
Asking this question will no doubt raise eyebrows and much consternation, especially in Nigeria where Alitheia Identity invests in financial services and financial technology aka Fintech. The question is meant to shock banks to get off the fence and into action.
Bill Gates is famously reported by the Economist to have said ‘Banking is necessary, banks are not.’ This quote resonates with my vision of retail banking in a ‘future’ that seems to have already arrived. The retail bank of the future will be ubiquitous, contextual, social and invisible. It will provide personalised services seamlessly/invisibly, much in the same seamless way that Uber receives payments from customers today. Invisible payments will become the norm where customers will walk into certain locations (off and on-line) select or be prompted to enjoy offers on products and services, and have payments automatically deducted. In this regard, the retail banks will be entities that provide non-banking services with embedded banking services. It will be wherever and whenever. Providing payment, savings and credit services in context with the customers’ needs, wants, behaviour and footprint in the driving seat. Amazon has led the foray into this ‘future’ by opening its first checkout-free store.
Currently, entities that are at the vanguard of developing these invisible payments are not traditional banks. They are technology companies such as Amazon and Google. It is widely believed that banks have not been quick to push these technologies for fear of cannibalising their credit and debit card products. Although, this may seem to spell doom for incumbent banks as these seamless technologies enjoy wide adoption, in my view it is unlikely that entities like Google and Amazon will want to completely take over the business of banking, and its attendant regulatory and compliance headaches. Instead they may wish to partner and offer their technologies within a financial services ecosystem. Such an ecosystem would have the retail bank of the future as a platform with incumbent banks at the core providing banking ‘plumbing’ as a service and partnering with Fintech or technology challengers to provide the personalised and contextual experience that customers have come to expect.
Question: Are Nigerian banks ready or preparing for this new reality — a shift from the traditional integrated end-to-end model to a modular plug-and-play model?
It is no surprise that technology shifts will be at the heart of retail banking’s transformation over the next ten years just as it has been over the past ten when the word and concept of digital banking began to gain prominence. However, to date, the use of digital technologies has been majorly focused on automating mundane tasks, and providing shiny new interfaces on old dated banking legacy systems. The retail bank of the future will not merely layer digital interfaces on to existing systems, it will have a digital core upon which it will provide a rich customer experience. To achieve this, software developers, data scientists and design professionals will play a larger role in the management teams and boards of the banks of the future. Their skills will be essential to shift from the emphasis on automating processes to outcomes that delight with a greater focus on customer needs based on insights from treasure troves of customer data.
Question: Have banks started broadening their employee engagement strategies to attract/keep the purveyors of these new skills? Banks that are still focused on shiny new interfaces and lacking the requisite design/data skills are not at the start line let alone in the race for retail customer growth and stickiness.
The main technologies that will play a key role in the development of the retail bank of the future are Deep Learning and Artificial Intelligence, which will enable the mining of customer data (from both non-financial and financial entities) to set rules based on insights from customer preferences and behaviours. This in turn will enable providers to make informed recommendations for products and services and take pre-determined actions with customer permissions. The winning ‘banks’ in this new world will intelligently use all the information that they have about customers to ‘make life possible and easier’…possible to employ financial services to live life to its full potential, in whatever way the customer chooses to define ‘full’. Smart banks will leverage this data and a customer’s social capital to determine its risk appetite for that customer and how best to use the customer’s social network to market its services. In other words, demand and supply for financial services will emanate from and be fuelled by a customer’s relationship with a non-financial entity and the customer’s social interactions.
On the customer side, the pervasive use of ‘wearable technologies’ and the ‘Internet of Things’ will literally turn the customer and his environment into the ‘branch’ for a personalised and contextual service. The implication of this will be a re-imagining of bank branches and their function. This is already playing out with the reduction of bank branches globally. That said, bank branches will not be completely eliminated but redesigned as places that attract customers to experience their ‘bank’ in a new and modern way.
Question: Are Banks Fintech ready? Are we all ready for this new reality?
The move is inevitable, standing still is actually walking backwards and no one can afford to do that.
About the Author
Tokunboh Ishmael is an accomplished and experienced private equity investor with a proven track record. She is Managing Director and co-founder of Alitheia Capital (www.thealitheia.com) In 2015, she co-founded Alitheia Identity (www.alitheiaidentity.com) a fund manager that invests in high growth small and medium enterprises (SMEs) with significant opportunity to grow profitably and deliver above-market returns. The firm does this through a proactive approach to funding businesses led by female founders and co-founders towards ensuring greater participation of women at at all levels from boardroom to factory floor. Tokunboh is a CFA Charterholder, corporate financier and M&A banker historically having worked on over $5.6 billion M&A deals across the US, UK and Africa.